What’s the real scoop on low cost franchises
Let’s start with the basics. Low cost franchises are generally considered to be under $100,000 (in the case of Franchise Business Review) and $50,000 (to make Entrepreneur’s list) “all in”. All in means the total out of pocket expenses you are likely to incur in getting your business up and running. That would include (among other things): the franchise fee, the marketing costs to promote your opening, any cost of initial equipment needed – usually leased, etc.
In order for a business to fall into this “low cost franchise investment” range, it will almost always, by definition, be home based. This is because you are eliminating the need to lease space, build out that space, and buy expensive equipment. These are going to be service businesses which rely more on you, the owner, to build it with your marketing savvy or just plain grit in going out and building your business. Sometimes these businesses will require cold calling to really get going, usually a lot of marketing dollars, and ALWAYS involve getting out into your community and networking your little fanny off.
So are these the “best” businesses? I would say they are best for certain people, with certain skill sets and in certain situations. Someone with high sales and marketing acumen and a desire for a home based business (which means a lot of flexibility in terms of how and when you work) is a good fit for some of these.
What’s important in doing the due diligence around these businesses, is when making calls to existing franchisees – something a good franchise consultant (ahem) will coach you how to do – is to find out how soon before they got their first client, how long it took to ramp up (to make regular income), and what have they found to be the best marketing strategy. Another good question is: “How much are you spending to market your business”? The best way to fail in any new business strategy is to go in undercapitalized, thinking somehow you will have clients when you “open your doors”. Marketing will be your single biggest expense in these kinds of businesses and are critical to your success. Be sure the “all in” figures disclosed in the franchise disclosure documents you are reviewing is validated by the owners that you call, and is a reasonable figure of what you will go through until you are cash flowing.
Jane Stein is the founder of Your Franchise is Waiting, a consultancy firm for men and women exploring franchising as an alternative career path.